Refinancing your student loans
Students recognize the need to obtain funding for their college or university but they often forget or not fully understand the realities about the repayment of these loans. On an average, a four year bachelor’s degree would cost roughly $60,000 and the interest that would be charged on this amount would be around 6.5%. Further, repayment of the loan would begin after the grace period of six months has expired post your graduation. The fact whether you have a job or not is not even taken into consideration. As a result, when it comes to repayment or when the realities of the current economy and job shortages are felt, there is panic among students which these days are resulting in more and more loan defaults.
Well, all is not lost. You have a few options and in this article we are going to take a detailed look at one of them. In order to reduce the burden of a student loan, there is respite in the form of ‘refinancing of loans’.
What is Refinancing of Student Loan?
One of the easiest ways to reduce the burden of your student loan is to refinance the same. The main aim under refinancing is reduction of loan APRs. The APR is the cost of loan servicing and is calculated as a percentage of the principal amount. Many private institutions providing student loans charge an exorbitant APR as this works towards increasing their profits.
This is where the refinancing institutions come to your rescue. Refinancing institutions do not necessarily offer a lower rate of interest as compared to what is offered by the government`s financial aid (student loan) programs. These refinancing institutions offer an extended period of loan repayment. Over this extended period a new monthly payment rate is calculated which turns out much lesser than what was previously being paid on the original loan.
In refinancing, the refinancer pays all of the student`s previous debt to the institution that first provided you the loan. This will officially end the student`s relationship with the first lending agency or creditor and a new relation will be formed with the refinancer. The payment schedule is decided based on the student`s capability to repay and the time he/she would need to service a loan. Please remember that the final cost of refinancing will turn out to be more than what the student would pay under a normal loan program. However, the interest rate is much lower.
How to Refinance a Student Loan?
Many refinancing avenues are available with the private lending institutions. High demand for refinancing student loans have forced many banks to start separate departments focusing primarily on refinancing.
To obtain refinancing the following should be steps should be taken-
- Establish of a good relationship with your bank. This would make it easier for the bank to bend certain rules to accommodate your needs.
- Ensure a good credit rating. Being debt free would indicate a god credit rating, but your attitude towards timely settlement of debt is extremely important in determining a good credit history.
- Demonstrate financial responsibility by assembling an expense report to prove that you act responsibly towards your debt and it is the loan arrangement that is causing the need to refinance.
- Research on the terms of refinancing offered by other institutions and also the rates of interest.
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